deloitte shines a spotlight on economics and the global consumer

Deloitte Shines a Spotlight on Economics and the Global Consumer

IRA KALISH, Chief Global Economist, Deloitte Research

2Copyright © 2016 Deloitte Development LLC. All rights reserved.

Global economic outlook


United StatesWhat to expect from the Trump Administration

Congress:

• Both houses of Congress controlled by Republicans• Republicans hold 52 of 100 Senate seats• Require 60 votes to break a filibuster• Trump must work with Chuck Schumer on many areas of legislation

Traditional Republicans Trump Republicans

Tax cuts and reform Restrict trade

Deregulation Restrict immigration

Free trade and capital movements Industrial policy (Carrier, Ford, GM, Boeing, Lockheed)

Encourage skilled immigrants Infrastructure investment



Topic Policy

Trade • Wants to label China a currency manipulator, possibly impose tariffs• Will withdraw TPP, negative impact on Japan, empowers China• Wants to re-negotiate NAFTA, possibly impose tariffs on Mexico• Pressure companies not to shift resources to other countries

Spending and deficits • Boost spending on infrastructure, military• Will not cut entitlements• Pay for increased spending by borrowing

Regulation • Less regulation of environment, energy, labor, financial services• Impose parental leave requirement• Exit Paris accord on climate



Economic and financial impact:

• Tax cuts and infrastructure spending boost supply of bonds, stimulate economy• Accelerates wage increases and boosts inflation• Boosts short term economic growth, but not necessarily longer term growth• Cutting corporate taxes brings cash home from overseas, boost value of dollar• Infrastructure spending and deregulation could boost longer term growth• Trade and immigration restrictions slow growth, boost inflation, increase risk of recession• Initial market reaction indicates that investors are not focused on trade, more focused on fiscal and regulatory

measures. This could change.


• Rising expectations of inflation in US and Europe• Expectations of bigger budget deficits in the US

and UK• Investors expect stronger economic growth in US

and Europe

Asset marketsRising bond yields


Oil prices rebounded due to:

• Declining U.S. investment and production• OPEC decision to cut production, not likely well

enforced• If production falls:

− Prices will rise. − Shale producers will return to the market− Boost production− Suppress prices. − A ceiling will be reached.

• Expect a prolonged period of relatively low oil prices

Asset marketsCeiling on oil prices


Currency Influences

US dollar • Strengthened over last two years due to relatively strong growth, higher yields, expected tightening of monetary policy

• Declined in past year due to revised expectations of Fed policy• Increasing now due to expectations of new fiscal policy

Euro • Downward pressure due to ECB policy, expected easing of policy, expected shift in US policy, pessimism about euro sustainability

Pound • Downward movement due to expected drop in inbound foreign investment

CurrenciesDollars, Euros, Pounds


• Until two years ago, capital flowed into China, exerting upward pressure on currency, boosting reserves

• Now, capital flows out due to:• Weaker economy• More outbound investment• Rich Chinese moving funds out of the country

• End result, downward pressure on currency, selling of reserves

• Possible rapid depreciation before Trump takes office, could fuel conflict with US

CurrenciesRenminbi


United StatesEconomic conditions

Job market strong, mature:

• Job growth slowing, but remains strong• Job openings rate historically high• Shortages reported, especially for those with specific

skills• Economy at full employment• Participation stabilizing after long decline

20012002200420052007200820102011201320141.0

1.5

2.0

2.5

3.0

3.5

4.0Job openings rate

Payroll employment growth

Source: US Federal Reserve


Declining male participation:

• Shifting demand for skills• Displacement from technology and trade• Hurts economic growth, but also hurts

social stability• Contributes to income inequality• Contributes to populist politics




Influences on the consumer:

• Rising employment • Wages begin to accelerate – especially at the

lower end of the spectrum• Stronger cash flow, less debt, greater ability to

borrow again• Persistent low energy prices• Improved financial market conditions• Rising income inequality slows consumer

spending growth

Debt service/disposable income

Source: US Federal Reserve


Slower growth, different growth:

• Slower growth due to weak exports and investment• Transition from low wage to higher wage manufacturing• Transition from manufacturing to services• Transition from exports to domestic demand• Excessive growth of state-sector, slow growth of private sector• Needed transition from investment to consumer spending• Transitions hampered by policy• Economy at risk from excessive debt

ChinaTransitioning


• Declining working age population boosts wages, hurts economic growth, hurts export competitiveness

• Declining rural-urban migration hurts growth. Requires end of second-class status for migrants

Growth of working age population

ChinaDemographics


Mixed picture:

• ECB policy has suppressed euro, suppressed borrowing costs, and boosted asset prices

• Consumer spending weakening after good growth• Unemployment remains high• Investment remains weak• Strength in Spain, Ireland, Germany• Weakness in France, Italy• Inflation starts to accelerate

EurozoneGrowth outlook


• UK economy surprisingly resilient • Investment and hiring could falter due to risk of

new trade barriers• Cheaper pound will hurt consumer spending,

economic growth• Government appears headed toward “hard Brexit”

with subsidies for companies and industries• Potential impact on autos, financial services,

pharma• Impact on rest of world muted

Source: IMF

United KingdomBrexit and beyond


Persistent stagnation and deflation:

• Per capita GDP growth not bad• Despite Bank of Japan easing, including negative

interest rates, deflation persists, credit creation falters

• Economy intermittently stalls• Exports weaken as yen strengthens• US dollar strength could reverse upward

pressure on yen• Prime Minister wants fiscal stimulus• Failure of TPP hurts

JapanGrowth outlook


Recovering from a bad episode:

• Many EMs hit by perfect storm:– Strong US dollar– Weak commodity prices– Led to high inflation– Led to tight monetary policy– Too much debt

• Russian and Brazil remain in recession• Rebound in activity as currencies and commodity prices stabilize• Longer term outlook still strong• Short term risks:

– Stronger US dollar– US protectionism– Decline in oil prices

Emerging market debt/GDP

Emerging marketsGrowth outlook


Global Powers of Retailing 2017Highlights


Wal-Mart continued its long-held position as the world’s largest retailerTop 10 retailers

e: Estimate

#1#2#3#4#5#6#7

Costco Wholesale Corporation

The Kroger Co.

Schwarz Unternehmenstreuhand KG

Walgreens Boots Alliance, Inc. (formerly Walgreen Co.)

The Home Depot, Inc.

Carrefour S.A.

Wal-Mart Stores Inc.

Aldi Einkauf GmbH & Co. oHG

Tesco PLC

Amazon.com, Inc.

#8#9

#10

US

US

US

Germany

US

US

France

Germany

UK

US

$ 482.1

$ 116.2

$ 109.8

$ 94.4

$ 89.6

$ 88.5

$ 84.9

$ 82.2 e

$ 81.0

$ 79.3

+5

+3

-1

-1

-4

+2

Key highlights

The top 4 retailers maintained their positions on the leader board

Acquisitions, divestitures and exchange rate volatility shuffled the rest of the top 10

Walgreens moves up leader board and Amazon joins top 10

Germany’s Metro Group fell out of the top 10 as the company’s transformation process accelerated

FY2015 Retail revenue (US$ billions)Country of origin Change in rank#: FY2015 Top 250 rank


Percentage share of top 250 revenue by region and by top countriesGeographic breakdown

North America

47.6%

Europe

35.0%

Latin America

1.6%

Asia Pacific

14.4%

Africa/Middle East

1.4%

US45.6%

China/Hong Kong3.7%

Japan6.5%

Other Asia Pacific4.3%

France8.2%

Germany9.8%

UK5.8%

Other Europe11.2%


Product sector breakdown

9.8%

Apparel and accessories

Fast-moving consumer goods

(FMCG)

66.6%

Hardlines and leisure goods

16.4%

Diversified

7.2%% Share of revenue

TOP 250

45

133

Companies by sector

Key highlights Revenue growth for the apparel and accessories retailers outpaced

the other product sectors, for the third year in a row

Retailers of FMCG are the largest companies and the most numerous among the top 250— with average retail revenue of US$21.6 billion

50

22

The strong growth of e-commerce giants Amazon.com and JD.com gave the hardlines and leisure goods group’s composite revenue growth a big boost— offsetting negative growth among 13 of the sector’s 50 companies

The diversified group has experienced persistently slow growth—its composite revenue declined as two of the three largest diversified companies posted negative top-line results

Percentage share of top 250 revenue by primary product sector


FY2010-FY2015Top 10 fastest-growing retailers

e: Estimate

#1#2#3#4#5#6#7

JD.com, Inc.

Albertsons Companies, Inc.

Axel Johnson AB / Axfood, Axstores

Sprouts Farmers Market, Inc.

Steinhoff International Holdings N.V.

Southeastern Grocers, LLC

Vipshop Holdings Limited

OJSC Dixy Group

PJSC "Magnit"

Grandvision N.V.

#8#9

#10

Key highlights

From 2010 through 2015, the composite retail revenue for the 50 fastest-growing retailers increased at a CAGR of 22.2%—more than 4X times faster than the growth rate for the entire top 250 group

34 of the fastest 50 companies were among the 50 fastest-growing retailers in FY2015

E-commerce and acquisitions are the key drivers for the fastest 50

FY2015 Retail revenue (US$ billions)Country of origin FY2010-15 Retail revenue CAGR#: Growth rank * Revenue includes wholesale and retail sales

China

China

US

Sweden

US

South Africa

US

Russia

Russia

Netherlands

$ 6.1

$ 27.0

$ 58.7

$ 5.8 *

$ 3.6

$ 13.2

$ 11.1 e

$ 4.5

$ 15.7

$ 3.6 *

184.6%

81.3%

74.1%

49.2%

47.4%

44.5%

34.6%

33.5%

32.0%

29.1%

157

36

17

164

242

72

84

198

61

244

Top 250 rank


FY2015Top 10 e-retailers

#1#2#3#4#5#6#7

JD.com, Inc.

Apple Inc.

Wal-Mart Stores, Inc.

Suning Commerce Group Co., Ltd.

Otto (GmbH & Co KG)

Tesco PLC

Amazon.com, Inc.

Vipshop Holdings Limited

Liberty Interactive Corporation

Macy's, Inc.

#8#9

#10

US

China

US

US

China

Germany

UK

China

US

US

$ 79.3

$ 27.0

$ 24.4 e

$ 13.7

$ 8.1 e

$ 7.2

$ 6.5 e

$ 6.1

$ 5.1

$ 4.9 e

13.1%

54.5%

18.2%

12.3%

95.0%

0.5%

9.0%

64.4%

1.0%

n/a

Key highlights

E-commerce is the major growth engine for many top 250 retailers

80% of the 50 largest e-retailers are top 250 companies

The vast majority of the e-50 are based either in the US (26 companies) or Europe (19 companies)

The pace of growth of online sales has decelerated for retailers engaged in e-commerce, but it remains higher than the growth in overall revenue

10

36

33

1

46

92

9

157

97

35

Top 250 rank

e: EstimateFY2015 e-commerce retail sales (in US$ billions)

#: FY2015 e-50 rank * Revenue includes wholesale and retail sales

FY2015 e-commerce growth rateCountry of origin


13 retailers appear in the top 250 for the first timeNewcomers to the Top 250

PETCO Animal Supplies, Inc.

Smart & Final Stores, Inc.

BGFretail Co., Ltd.

Hobby Lobby Stores, Inc.

Nojima Corporation

Ulta Salon, Cosmetics & Fragrance, Inc.

Homeplus Co., Ltd.

PT Indomarco Prismatama (Indomaret)

HSN, Inc.

PT Sumber Alfaria Trijaya Tbk (Alfamart)

FY2015 retail revenue growth (%)Country of origin

Savola Group/Panda Retail Company

Sprouts Farmers Market, Inc.

American Eagle Outfitters, Inc.

Top 250 rank

163

208

222

227

229

231

234

235

236

239

240

242

247

Hypermarket/Supercenter/Superstore

Other Specialty

Cash & Carry/Warehouse Club

Convenience/Forecourt Store

Other Specialty

Electronics Specialty

Other Specialty


Non-Store


Hypermarket/Supercenter/Superstore

Supermarket

Apparel/Footwear Specialty

ne

5.1%

12.4%

28.7%

2.7%

86.5%

21.2%

20.1%

2.9%

15.5%

10.9%

21.1%

7.3%

S. Korea

US

US

S. Korea

US

Japan

US

Indonesia

US

Indonesia

Saudi Arabia

US

US

Dominant format ne: not in existence (created by divesture or merger)

Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee (“DTTL”), its network of member firms, and their related entities. DTTL and each of its member firms are legally separate and independent entities. DTTL (also referred to as “Deloitte Global”) does not provide services to clients. Please see www.deloitte.com/about for a more detailed description of DTTL and its member firms. This communication contains general information only, and none of Deloitte Touche Tohmatsu Limited, its member firms, or their related entities (collectively, the “Deloitte Network”) is, by means of this communication, rendering professional advice or services. Before making any decision or taking any action that may affect your finances or your business, you should consult a qualified professional adviser. No entity in the Deloitte Network shall be responsible for any loss whatsoever sustained by any person who relies on this communication.© 2017. For information, contact Deloitte Touche Tohmatsu Limited.